Posts Tagged ‘Declining wages’

The rise of Trump has provoked a considerable outpouring of commentary from the pundits. Most of it centered on the chief complaint that the white working class is upset about losing its privileged position and see Trump as the ticket to setting things right.

There is considerable truth to this story. Trump’s strongest support comes from white men without college degrees, although he also does quite well among small business owners. But before we condemn these workers as hopeless Neanderthals, it is worth stepping back a bit to consider what led them to support Donald Trump’s candidacy in the first place.

The “privilege” that these working class whites are looking to defend is middle-class factory jobs paying between $15 and $30 an hour. These jobs generally came with decent health care benefits and often a traditional defined benefit pension, although that has become increasingly rare over the last two decades.

This is certainly a privileged position compared to billions of people in the developing world who would be happy to make $15 a day. It is also privileged compared to women, whose pay still averages less than 80 percent of their male counterparts. And, it is privileged compared to the situation of Americans of color who have frequently been trapped in the least desirable and lowest-paying jobs.

But these factory jobs and other blue collar occupations are hardly privileged when compared to the high flyers in the financial industry, the CEOs and other top level managers, or even professionals like doctors and dentists. These groups have all seen substantial increases in their pay and living standards over the last four decades.

If you want to see “privilege,” look to the CEO making $20 million a year as they turn in a mediocre performance managing a major corporation. Or talk to a cardiologist, an occupation with a median annual salary of more than $420,000 a year.

The pundits all know about these disparities in pay, but they want us to believe that they have nothing to do with privilege; rather, they reflect the natural workings of the market. And they tend to act really ridiculous when shown evidence otherwise.

A while ago I spoke at a firefighters convention in the Pacific Northwest, talking as I always do about the ways we have rationalized these changes to ourselves.

Firefighters are the sort of people we honor for their bravery, but they also happen to be blue-collar workers, and they have watched with increasing alarm what has been happening to folks like them for the last few decades . . . watched as the people formerly known as the heart and soul of this country had their lives taken apart bone by bone.

They themselves still make a decent living, I was told—they are some of the last unionized blue-collar workers who do—but they can see the inferno coming their way now, as their colleagues in other parts of the country get their contracts voided and their pensions reduced.

After I spoke, a firefighter from the Seattle area picked up the microphone. Workers had been watching their standard of living get whittled away for decades, he said, and up till now they had always been able to come up with ways to get by.

The first adjustment they made, he recalled, was when women entered the workforce. Families “added that income, you got to keep your boat, or your second car, or your vacation, and everything was OK.” Next, people ran up debt on their credit cards. Then, in the last decade, people began “pulling home equity out,” borrowing against their houses.

“All three of those things have kept the middle class from having to sink down into abject poverty,” he said. But now all three coping mechanisms were at an end. There were no more family members to send to work, the expiration date had passed for the home-equityMasterCard, and still wages sank. His question was this: “Is there a fourth economic savior out there, or do you think that maybe we have reached the end?”

CEOs of American companies complain of a lack of skilled workers and the lack of job training.

But if you look at what most of them do, and not what they say, they don’t really want productive workers. They want replaceable workers.

So argues Thomas Geoghegan, a Chicago labor lawyer, in his outstanding new book, ONLY ONE THING CAN SAVE US: Why America Needs a New Kind of Labor Movement.

One obvious example of this is Boeing’s decision to have its new Dreamliner made by inexperienced, low-paid workers in South Carolina rather than members of the International Association of Machinists in Seattle. They had production and quality problems in South Carolina, but their priority evidently was to get away from the union.

Now the same management philosophy is being applied to public schools, universities and hospitals. Well-trained, well-paid professionals are harassed, laid off and replaced with inexperienced newcomers.

If you define efficiency as that which is most convenient for managers, there is something to be said for this. An ignorant subordinate is less likely to give you an argument than an experienced and skilled subordinate. It is easier to treat people as replaceable parts if they lack knowledge and opinions.

The AFL-CIO has an excellent series of infographics about what’s wrong with the U.S. economy, which I have put into this post. For those who have a little time, I link to four articles explaining the infographics. For those who have more time, I then link to background information on which the articles are based.

My only argument with the AFL-CIO is that they attribute bad economic policies exclusively on Republicans, while ignoring Wall Street Democrats such as Bill and Hillary Clinton, Barack Obama, Joe Biden, Chuck Schumer and Christopher Dodd.

The United States officially has been in economic recovery in 2009. Economic output, as measured by Gross Domestic Product, is up. Corporate profits are up. The stock market has reached new highs. So, according to the law of supply and demand, wages should be rising, too. Right? Wrong.

Economics writer Felix Salmon has the figures.

NELP, the National Employment Law Project, has taken a detailed look at what happened to wages during the recovery — specifically, between 2009 and 2012. They looked at the annual Occupational and Employment Statistics for three years — 2007, 2009 and 2012 — and created a list of wages for 785 different occupations. They then split those occupations into five quintiles, according to income; the lowest quintile made $9.49/hr, on average, last year, while the highest quintile averaged $40.23/hr. […]

The big-picture lesson that NELP draws is that between 2009 and 2012, real median hourly wages fell by 2.8% — and that the poorer you were to start with, the more your wages fell. The top quintile didn’t do well: their wages dropped by 1.8%, in real terms. But the fourth quintile did particularly badly: its wages fell by 4.1%, on average.

To take one example, occupation 39-5012 — that’s Hairdressers, Hairstylists, and Cosmetologists — was earning $12.00 an hour, in 2012 dollars, in 2009. But by 2012 they were earning just $10.91 per hour: a drop of more than 9%.

Or look at occupation 51-6042 (“Shoe Machine Operators and Tenders”): that job saw wages fall 14%, in real terms, in just three years, with nominal wages falling from $12.69 to $11.69 per hour.

The charts show the large range of outcomes: some occupations are doing great. At the top end, the highest-paid profession on the list, Psychiatrists, went from earning $69.48 per hour in 2007, to $83.33 per hour in 2012. That’s a real increase of 8.3%. But overall, everybody is doing pretty badly.

Michael Cembalest, chief investment officer for J.P. Morgan Chase, says corporate profits are high largely because the wages of American workers are at a 50-year low relative to the size of the U.S. economy and to corporate sales. From his point of view, corporate profits are what matters, but he thinks they rest on a shaky economy. Hence the title of his report: Twilight of the Gods.

Here’s a summary of his report by Harold Meyerson in The Washington Post.

Michael Cembalest, the chief investment officer of J.P. Morgan Chase, … asserted in the July 11 edition of Eye on the Market, the bank’s regular report to its private banking clients, that “U.S. labor compensation is now at a 50-year low relative to both company sales and US GDP.”

Click to view

The primary subject of Cembalest’s report isn’t wages. It’s profits — specifically, the fact that profit margins (the share of a company’s revenue that goes to profits) of the Standard & Poor’s 500 companies are at their highest levels since the mid-1960s, despite the burdens of health-care costs, environmental compliance and other regulations that are presumably weighing down these large companies.

“There are a lot of moving parts in the margin equation,” Cembalest writes, but “reductions in wages and benefits explain the majority of the net improvement in margins.” This decline in wages and benefits, Cembalest calculates, is responsible for about 75 percent of the increase in our major corporations’ profit margins.

Or, to state this more simply, profits are up because wages are down. That’s not the only reason profits are up — innovation and offshoring factor in as well — but among the reasons, it’s a doozy.